Reference no: EM1312901
Providing recommendation based on capital budgeting requires calculation of NPV, IRR, payback period
Strident Marks is considering purchasing new manufacturing equipment that costs $1,300,000 and is expected to improve cash flows by $500,000 in year 1, $350,000 in year 2, $475,000 in year 3, $450,000 in year 4, and $300,000 in year 5.
Calculate key financial metrics for this capital budgeting project. A 14% rate of return and a payback period of less than five years are required for the project. These key metrics must include (1) payback period, (2) net present value, and (3) internal rate of return. (Use 6% as the
weighted average cost of capital).
In a memo to the CFO, discuss the metrics and make a recommendation whether to accept or reject the project.